Managed to find a lead in a newspaper to a commercial property for sale. Wasn’t on the net. They are asking $950,000, and it is returning $140,000 a year. Its an aged care home in a great city. The only thing worrying me is that the lease runs out in Feb 2006. I guess my question is do business often resign new leases? I am thinking an ages care home, that is obviously making money (as they can afford a huge lease), would be quite comfortable staying where they are as it would be huge for them to attempt to move locations?
Matt R (Gold Coast)
These can be a bit harder to find finance for. If they do not sign on for another term, it may be hard to rent out for other uses.
Terryw
Discover Home Loans
North Sydney
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Hi Matt,
Sounds like the ones we dream about!
If I was half serious I would ask the tennant if they plan to re sign and I would have their lease checked out.
hrm
Hi Matt,
Yep, talk to the tenant and find out what their intentions are. Don’t assume anything!
14.7% is great returns for a commercial property. Is this above the normal capitalisation rate for the area you are buying in?
If it is, find out if the rent has been increased just prior to the sale. Also what are the outgoings that you have to pay for, ie management fees?
Another thing I look for in commercial, is the rent subject to increase, and if so, how often?
Do the tenant have personal or bank garantees?
Have the lease looked over by a solicitor before buying and if you are concerned about the tenant not renewing, you can sign a long term contract on the asking price subject to rental renewal for another 2 years or whatever terms you are comfortable with.
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phone 0412 437 582Hi Dr X,
Originally posted by Dr.X:Do the tenant have personal or bank garantees?
Have the lease looked over by a solicitor before buying and if you are concerned about the tenant not renewing, you can sign a long term contract on the asking price subject to rental renewal for another 2 years or whatever terms you are comfortable with.
What is a personal/bank guarantee?
Is the long term contract you talk about something along the lines of “on condition of existing lease being modified to….”? Maybe the vendor could just renegotiate the lease prior to Matt’s purchase?
Matt – even if they do resign lease, etc. I still think it’d be a good idea to think about possible alternative uses like Terry suggested.
Munjy
In my experience with CIP’s, vendors typically lower the asking price to a level where the yields become attractive to purchasers regardless of tenancy lengths, especially when they have been given the ‘inside track’ on the tenant’s future intentions.
Contact the tenant’s Director and ask him/her their intentions.
When you say the ‘lease runs out’…do you mean the main portion of the lease with say a 3 yr option hanging off the end, or has the main lease run out 6 years ago and they’re just about to expire their second 3 yr option….all these things will be strong indicators.
Peruse the lease for minute details…it will all be in there.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
hi Matt R
I don’t know were this home is and you don’t know if there going to stay.
so first find out if they are going to stay.
then get out your local phone book and ring a couple of homes near by see what has been going on.
may be they have been going well and all will be great get the inside story.
ask if they would like to sign a 5 x 5 lease ( that will tell you if they are interested.
and the last part is that nusing homes are on commercial site usually note sure of this one I bought my last nursing home 35 bed at $115,000 per site the value at the time was $140,000 a site so they can be valuable.
there is 18 units sat on it know.
kept the name castle leap nursing home became castle leap apartments.
check all options.here to help
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